Gold M&A: Are Gold Assets Ripe for the Picking?

In a late May interview with Gold Investing News, Derek Macpherson commented that “[c]ompanies are comfortable enough with the gold price that they are selectively adding assets [to their portfolios].” Recent statistics back up that statement — merger and acquisition (M&A) activity in the second quarter of 2014 closed in on a seven-year high.

Speaking with BNN‘s Andrew Bell, Kenneth Hoffman, global head of metals and mining research at Bloomberg Industries, explained some of the reasons behind the M&A frenzy of late, using gold mining giant Barrick Gold (TSX:ABX) as an example.

“Look at Barrick. They want to go from 27 operations to 19 operations,” Hoffman said, adding that major miners have accrued a good chunk of debt, which has led to them wanting to shed their assets. Luckily, “they have found themselves a lot of buyers.”

One type of buyer of these non-core assets, as Hoffman noted, is private equity, where major miners have found “$50 billion waiting to buy mining assets around the world.”

Beyond that, Hoffman went on to explain that other contenders for gold mines are China — which has “spent over $2 billion this year on over 19 projects” — and mid-tier miners “who want to become larger operations.”

If this trend continues, perhaps before the year is out market watchers will be seeing a lot more that the current $12 billion in Canadian gold mining deals done in the second quarter, which Hoffman highlighted was the “second-highest quarter of the last 30.”

Either way, Hoffman affirms that in today’s gold market, “[t]here are plenty of sellers, plenty of buyers and prices are as low as they have been in decades.”

The most notable, and probably one of the largest M&A deals in the gold sector in Q2 2014, was the $3.9-billion deal between Agnico Eagle Mines (TSX:AEM) and Yamana Gold (TSX:YMI) for Osisko Mining.

Gold prices

Gold has come down slightly from its four-session winning streak, with the greenback extending earlier gains as US non-farm payrolls climbed higher than was expected in June. And while the payroll increases allude to an earlier-than-expected rise in interest rates, Federal Reserve Chairwoman Janet Yellen said this week that raising interest rates would be a bad idea.

“I do not presently see a need for monetary policy to deviate from a primary focus on attaining prices stability and maximize employment, in order to address financial stability concerns,” Yellen said at an International Monetary Fund lecture in Washington on Wednesday.

On the subject of interest rates and gold prices, however, Jeffrey Christian, managing director at CPM Group, told Reuters that “[i]f interest rates start rising, it’s because the Fed is worried about inflation, and that inflation factor can drive gold prices up even as interest rates rise.”

The gold spot price on Thursday touched a one-week low of $1,309.64 before bouncing back to $1,319.15. Meanwhile, gold futures showed little change, closing at $1,320.60.

Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.

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